Former Client Lost £267,750 When Challenging Deductions of £321
In a low value road traffic accident case where the client won £1900 for a ‘whiplash injury,’ her solicitors deducted a ‘success fee’ and the cost of her legal expense insurance to the value of £321. She did not complain. She never raised any query about the deduction.
Some years later, presumably she saw something online where specialist solicitors were marketing for clients to challenge their former solicitors deductions.
The arguments raised were highly technical by the specialist new firm. They no doubt saw a legal loophole where despite the very modest sums in dispute enabled them to rack up unbelievable legal bills out of proportion with the sums at stake. It would be very rare indeed to instruct a solicitor to recover a debt for say £10, but would be prepared to risk £8,000 as an example.
She ultimately lost here case on appeal to the Court of Appeal in the the landmark case of Belsner v CAM Legal Services Ltd  EWCA Civ 1387 and was ordered to pay £267,750 legal costs for a claim worth £321! This fee has now been paid through her new solicitors.
Why Can Solicitors Deduct Money From Client’s Compensation?
This is quite a technical area so this is a simplified explanation to assist non-lawyers. Solicitors, especially those involved in personal injury claims will in the vast majority of cases enter into a contract with their client called a conditional fee agreement (CFA) otherwise know as No Win, No Fee retainer.
In CFAs as a solicitor will take on the risk of receiving no costs if the case is lost, they are able to deduct what is called a ‘success fee’ up to a maximum of 25% of the compensation recovered from the losing party. This success fee is to compensate the solicitors for those cases that fail. CFA’s were introduced by the Government in 1999 so they could remove the legal aid scheme in personal injury cases to save on tax payer’s money.
CFA’s therefore allowed the Government to save paying solicitors through the legal aid scheme but they had to come up with a situation where everybody has the right to gain access to a solicitor. So CFA’s were introduced, initially it was the losing party (covered by insurance) that would pay the success fee, but in 2013, the Government changed this so that the solicitor’s client had to pay the success fee. Quite disgraceful.
To protect the client in a failed case the solicitor would (unless the client had their own legal expense cover) take out an after the event insurance policy, that would pay for any legal costs or expenses. Initially this policy was paid for by the losing insurance company but again in 2013 this was changed so that the client had to pay for it.
There is no surprise that these changes were by the Conservative Government one would say looking after the interests of large corporations. If these abhorrent changes were not made, Belsner case would not have been necessary.
What Happened When She Challenged Her Solicitor’s Bill?
The Court of Appeal addressed significant issues related to solicitors’ CFA’s and cost disclosures, offering stability for solicitors, especially those involved in personal injury CFA’s.
She challenged her £321 deduction pursuant to the Solicitors Act 1974 arguing that because she had not been informed of the fixed costs payable by the losing insurer (on top of the deduction she had to pay) she had not given “informed consent” to her whiplash injury solicitors charging more than the fixed cost paid by the losing insurance company.
She relied (or her new solicitors did) on CPR 46.9(2) that s.74(3) Solicitors Act 1974 which provides that the amount which may be allowed on assessment of a bill for “proceedings in the county court shall not…exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings” be disapplied only where the client and solicitor had entered into a “written agreement… [permitting the solicitor to recover from the client]… an amount of costs greater than that which the client could have recovered from another party to the proceedings” (being the relevant wording in CPR 46.9(2)) had not been satisfied.
In simplified terms, a solicitor cannot recover more than the costs paid by the losing insurer unless this was explained to the client and must be in writing. So, it was argued that her whiplash solicitors failed to properly advise their client clearly about the £321 deduction (or whatever deductions she may be liable for) from her £1900 compensation.
In respect of each step of the appeal the scenario is set out below.
What Happened at the First Court Hearing?
At the first hearing in the lower court, Judge Bellamy held at first instance that the disapplication of s.74(3) SA 1974 in CPR 46.9(2) did not require “informed consent” so her whiplash injury solicitors were entitled to keep her £321.
What Happened on Appeal?
Judge Lavender J, on appeal, held that because the solicitor was in a ‘fiduciary’ position with respect to the client “informed consent” to the disapplication of s.74(3) SA 1974 in CPR 46.9(2) was required. The whiplash injury solicitor did not explain to her clearly about the fixed costs recoverable and her liability for £321 so her consent to the solicitors charging more than that recovered from the losing insurer was not “informed” and consequently the condition in CPR 46.9(2) was not satisfied.
As a result, s. 74(3) SA 1974 applied such that the whiplash injury solicitor could not charge by way of the fixed costs more than the amount recovered from the losing insurer. The whiplash injury solicitors appealed.
What Happened at the Court of Appealed
Before the Court of Appeal, a new technical point was raised by the whiplash injury solicitors advising that s.74(3) SA 1974 did not apply at all because it only applied to “contentious business done… in the county court.” In short ‘contentious business’ means did she take her case to court? As the whiplash case settled in what is called the ‘Portal’ no actual court proceedings ever took place. Her whiplash injury solicitors won and was entitled to keep her £321,
Three important points were made by the Court of appeal
- S.74(3) SA 1974 did not apply to claims settled in the Portal because they were not “contentious business” which required court proceedings to have been issued.
- CPR 46.9(2) could not enlarge the meaning of s.74(3) and, therefore, no “informed consent” could be required by reason of that provision.
- A solicitor does not owe a fiduciary duty in respect of the negotiation of the CFA.
However the court advised that the whiplash injury solicitor had failed to give her the “best possible information about her possible liability to some deductions and could be in breach of paragraph 8.7 of the SRA Code of Conduct for Solicitors. That, however, did not affect the amount that the client was liable to pay the solicitor for the purposes of the Solicitors Act assessment given that the amount charged to the client was “fair and reasonable” for the purposes of paragraph 3 of the Solicitors’ (Non-Contentious Business) Remuneration Order 2009.
Solicitors across England and Wales were have some relief from this decision but not more to the client to challenged her solicitors deductions, she was fortunate that her new solicitors had appropriate cover to pay £267,750 over just £321. There are lessons to be learnt by everyone.
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